A note from VentureSouq:
When you cut to the core of it, our job at VentureSouq is pretty straightforward: we predict what themes are likely to happen in the world, determine which young companies are best suited to benefit from those themes, and then invest and convince others to allocate capital into those companies.
It’s thus part of our job to reflect on macro scenarios like that which the entire world is experiencing today, and follow closely as data is released, policies are rolled out, and general temperament of people changes. We’re also drawing parallels to the First Gulf War of the early 90s, to the 2000 tech crash, 9/11 in 2001 and the Great Recession of 2008– understanding the historical fallout from events like these can provide a blueprint for how to predict outcomes or make decisions today.
But whether or not a trodden path exists for any particular company, organization, government entity, or individual even, there is one absolute certainty: that the situation we’re in now changes everything for everyone.
We are venture capital (VC) evangelists. Ultimately, we believe in the long-term gravitation of the world towards a more globalized and technologically interconnected place. There is a prevailing belief that these two factors –globalization and technology– are the root source of the black swan event we’re experiencing now.
But we have no doubt that it is the same two factors that will ultimately get us out of this. This conviction runs through the arteries of our company. But we are also individuals, who can offer unique perspectives to our stakeholders, or other members of the venture and entrepreneurship ecosystem.
So we thought it would be an opportune time for each of us partners at VentureSouq to share some insights into, one, how we are processing this frightening, bizarre, dynamic, fascinating experience, and two, where we think this dislocation will give rise to opportunity, for our stakeholders and investors, for our portfolio companies, or for ourselves as a team.
Below is Founding Partner Tammer Qaddumi’s account.
I can find ways to relate to this crisis we are in right now with the COVID-19 pandemic. I’m from Houston, a hurricane bullseye zone. Every few years, shops shutter, people hunker down- basically, the world stops in advance of an impending disaster.
My first job was on the mortgage backed securities desk at an investment bank. This is the product that triggered the Great Recession of the late 2000s. I saw the world change then, but didn’t really get why- I was just too fresh to have any real context, but I saw it.
And as a private equity investor, we were long oil and gas when the supply-side war of 2014 caused oil prices to drop 80%. So, I’ve kind of seen each of the three wings of this “triple black swan”- just not at the same time.
The current situation is teaching us that the meaning of progress and success are very much functions of our macro environment. For the past five years, which is substantially the lifespan of VentureSouq, progress and success were measured by growth of basically everything: capital deployed, returns generated, revenue, team, countries. Of course, this was not easy to achieve, but it was straightforward to track. But this is not the case anymore.
For us, success right now is three-tiered:
- How our portfolio companies are doing
- How our own company is performing, and
- How well positioned we are to take advantage of the recovery
On the first point, we are only as good as the companies into which we’ve invested. For some of our companies, the current situation represents the potential for an immediate boon to business (think development and workflow tools, food delivery, online education, 3D printing). But for most, success means survival. We are learning to measure how well companies communicate with customers, manage down expectations of shareholders, optimize resources, recalibrate strategies and plans. “Scalability” has always been an essential criterion for us, but we have always evaluated that in one direction: scaling up. Now, we better understand the importance of companies being able to scale down. Now we better understand why variable cost structures are so beneficial. Simply put, success in this first instance means having the vast majority of our portfolio companies living to see the other side of this.
On the second point, our progress is measured in how well we use this situation to improve long-term productivity. Now is our chance to nail our remote working processes, as we have no other choice. Now is our chance to redefine our investment thesis and approach to be macro data driven, as we have been slapped with the global cyclicality that underpins venture (and every other asset class).
On the third point, this is less about reputation, funding, or even market confidence, and more about preparation. Prior to the COVID-19 pandemic, we had developed a specific thesis around regional fintech, based on first principles: customer and enterprise habits, global trends, developments in technology, speed of regulatory changes, etc. That thesis hasn’t changed; in fact, it has become more pronounced.
Source: VSQ analysis, including publicly traded banks, fintech, and payment companies
If you look at the 2000 and 2008 market events, we draw two very clear observations:
1. Fintech and payments companies outperform traditional banks, insurers, and financial institutions during and in the immediate years that follow a downturn
2. Fintech revenue growth is higher during these same periods than during “good times.”
Couple this with the valuation reset that will certainly follow (with a lag) the public market repricing that we’re seeing now, and we believe we will eventually have a once-in-a-generational opportunity in the fintech space. We are concertedly building this narrative with our investors, and spending a lot of time with the fintech companies that we believe will be positioned to take market share across the region.